思杰系統 (CTXS) 2011 Q1 法說會逐字稿

Good afternoon, my name is Casey, and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the Citrix Systems first-quarter 2011 financial results conference call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions). I would now like to introduce Mr. Eduardo Fleites, Senior Director of Investor Relations. Mr. Fleites, you may begin.

Thank you, Casey. Good afternoon, everyone, and thank you for joining us for today's call where we will be discussing Citrix's first-quarter 2011 financial results.

Participating in the call will be Mark Templeton, President and Chief Executive Officer; and David Henshall, Senior Vice President and Chief Financial Officer. This call is being webcast with a slide presentation on the Citrix Systems Investor Relations website and the slide presentation associated with the webcast will be posted immediately following the call.

Before we begin the review of our financial results, I want to state that we have posted product classification and historical revenue trends related to our product groupings to the Investor Relations page of our website. I would like to remind you that today's conversation will contain forward-looking statements made under the Safe Harbor provisions of the US securities laws.

These statements are based on current expectations and assumptions that are subject to risks and uncertainties such as the impact of the global economic climate, uncertainty in the IT spending environment, risks associated with our products, acquisitions and competition. Obviously these risks could cause actual results to differ from those anticipated.

Additional information concerning these and other factors is highlighted in today's press release and in the Company's filings with the SEC including the risk factor disclosure contained in our most recent annual report on Form 10-K which is available from the SEC or on the Company's Investor Relations website. Furthermore, we will discuss various non-GAAP financial measures as defined by SEC's Reg G.

A reconciliation of the differences between GAAP and non-GAAP financial measures discussed on today's call can be found at the end of today's press release and on the Investor Relations page of our website. Now, I would like to turn it over to David Henshall our Chief Financial Officer. David?

Thanks, Eduardo. And welcome to everyone joining us this afternoon.

As you can see from the release, we're starting off the year with good momentum across all of our businesses delivering $491 million in total revenue, adjusted EPS of $0.50 and $159 million in cash flow from operations. I'm really pleased with our execution in the field and throughout the organization in Q1.

We're driving leadership across desktop virtualization, delivering significant new technologies in the networking business and expanding our SaaS footprint, trends that can be clearly seen in the financials. So looking at the first quarter, revenue from new license sales was $150 million up 22% from last year.

License update revenue increased 9%, tech services increased 44% lead by record consulting demand and support agreements attached to our networking products. And finally online SaaS revenue was $100 million up 17%.

From a geographic perspective, the Americas region continues to execute really well, delivering revenue up 22% from last year to $217 million. And included in this number is product license growth of about 23% year on year and 11 individual transactions greater than $1 million.

In EMEA revenue was up 12% to $133 million and similar to last year, demand across the region was uneven particularly with the public sector as many countries are still working through budgetary constraints and capital project prioritization. And finally, Japan and Pacific are both growing significantly posting combined revenue growth of 25% from last year. So overall a very solid quarter.

As we look into 2011, customer activity metrics and pipeline continue at record levels. We remain committed to delivering balanced results while investing to expand our competitive position, innovation and capacity across our three main product categories. So now let's look at the Q1 results within these three businesses.

First, Desktop Solutions grew 13% from last year to nearly $290 million. Included in this was product license revenue of $100 million which is an increase of 21% over Q1 last year.

The license growth was led by strength in XenDesktop where the product license was up well over 100% from last year to $43 million and is quickly approaching one-half of the total license mix for the Desktop Solutions group. For a little more context on the Desktop business in Q1, there's a few metrics that I think really demonstrate the breadth of adoption we're seeing and the strategic value that customers are placing on desktop virtualization within their infrastructure.

In fact, eight of the 14 deals that were over $1 million in Q1 included XenDesktop licenses. There were over 2000 different customers that purchased XenDesktop in the period including 83 transactions for more than 1000 seats each and 17 deals for over 5000 seats. We exited Q1 with a record pipeline of $1 million plus enterprise Desktop opportunities.

So next in our Data Center and Cloud business, total revenue was $78 million up 33% in the quarter with new product revenue increasing 27%. The growth in this business was led by NetScaler with revenue up more than 50% year on year. We continue driving a successful initiative to cross-sell networking into our enterprise base with several hundred customers purchasing both software and hardware products together in Q1.

Regarding the specific platforms, contribution from the high end NetScaler MPX appliances was up sharply due to wins within dot com, telco and service provider segment. And the VPX line of virtual appliances continues to do really well giving both enterprise and cloud customers a new level of performance and flexibility within their data centers and clouds.

And in total, VPX revenue was up more than 300% compared to Q1 last year and now accounts for almost 10% of NetScaler license revenue. This is only after six quarters in the market.

And finally touching on our SaaS business, revenue was up 17% in the first quarter to $100 million and the growth here continues to be led by the collaboration products which are up about 30%. In the second half of Q1, we closed the acquisition of Netviewer in Germany.

And this is an important part of the strategy to accelerate our SaaS footprint internationally. And due to the timing of the close, the revenue contribution was about $3 million in Q1.

So looking at expenses and operations, in the first quarter, adjusted out margin was 23%, up 74 basis points from last year and really a result of revenue performance and our continued focus on execution. Our plan has been to invest slightly behind the demand growth we're seeing in the market.

So as bookings, pipeline and proof-of-concepts have accelerated, continue to focus on two main areas. First, expanding go to market reach and customer touch through enterprise account managers, strategic partnerships, consulting and tech support. And second around product innovation, to bring to market new technologies as well as improving integration across the solutions to drive simplicity and a better end-user experience.

In Q1, we added 350 new people to Citrix including 200 of which that joined the team through the Netviewer acquisition. Year-on-year total headcount increased a little over 1000 people.

Also note, I'd like to point out that included in the other income line in Q1 is foreign exchange remeasurement gains of about $3 million. Turning to the balance sheet, cash and investments closed at $1.6 billion driven by $159 million in cash flow from operations.

During the quarter we invested about $120 million in acquisitions and repurchased nearly 1.6 million shares of stock at an average price of $69 per share. Today we also announced that the Board has authorized an additional $500 million of repurchase authorization to be used in the future as part of our ongoing program.

And finally, deferred revenue at the end of the quarter was a record $789 million up 24% from last year. The four main drivers of this growth have been the increasing size of the base for subscription advantage program, the success of the desktop trade-up initiative, a greater volume of multiyear deals being closed, and tech service contracts for consulting and support.

So really in total a great Q1. We're executing well.

We're seeing growth in all our strategic businesses and we're making the investments necessary to extend our leadership position in critical markets while expanding our go to market capacity. So finally, I would like to discuss our current outlook and expectations for Q2 and the full year 2011.

Given the strength we are seeing across several facets of the business and the growth for opportunity pipeline, we are increasing our outlook for 2011. For the full year our current expectations are now for total revenue to be in the range of $2.14 billion to $2.17 billion and adjusted EPS of between $2.38 and $2.41 per share.

And for the second quarter of 2011 we currently expect total revenue to be in the range of $515 million to $525 million, an adjusted tax rate of 22% to 23% and adjusted EPS of $0.54 to $0.55. So I'd like to turn it over to Mark to give you additional details on the quarter's performance and discuss our ongoing businesses. Mark?

Thanks David. 2011 is off to a great start, extending financial and strategic momentum from an exciting 2010.

Q1 demand in our core markets was strong with acceleration in collaboration, desktop and networking segments. Business through SIs is driving growth in multimillion dollar deals and adding rapidly to the overall pipeline.

And our technical and consulting services teams are having consistent successes with larger more strategic accounts from pre-sale all the way through implementation. And I'd like to say our Japan team turned in a remarkable performance in spite of the disaster, not missing a beat. I'd like to thank them and say that I'm proud of how they've supported our customers, partners and colleagues there.

In all, we're feeling confident about our execution across SaaS, premise and appliance business models and around our strategic objectives in a rapidly changing computing landscape. The industry is clearly moving from the PC era to the cloud era.

This transition driven by consumerization is changing the way we work and play. It's transforming the desktop, it's transforming networks, and it's transforming the way we collaborate.

The combined forces of cloud and consumerization are clearly driving our desktop business as CIOs love to create private desktop clouds that deliver apps, desktops and data to a wide mix of IT-owned and employee-owned devices. We are meeting this growing demand with increased capacity for top-down customer engagements through global SIs.

Go to market alliances with strategic partners like Microsoft, Cisco, Dell and HP; and product innovations in XenDesktop 5 and XenApp 6 that dramatically simplify large scale enterprisewide deployments. This is how we are driving desktop virtualization into the mainstream.

Worldwide we now have 50 customers with more than 10,000 licenses of XenDesktop with several in excess of 100,000. The business drivers to go virtual at the desktop are broad, impacting customers of all sizes, industries and geos.

Some wins from the quarter tell this story. For example, a US-based healthcare provider rolled out 5000 seats of XenDesktop to consolidates facilities and to securely deliver sensitive medical information to affiliate clinics efficiently over the wide area network.

Our FlexCast technology allows them to support the full variety of use cases from doctors and nurses to office workers using a wide variety of PCs, laptops, thin clients and tablets. In Europe, a top-tier retail bank expanded their large-scale XenApp trade-up from last year by adding new licenses of XenDesktop Platinum to accelerate the merger integration of an acquired bank.

And as one of the world's largest HR service firms chose a mix of XenDesktop and XenApp to centralize, simplify and lower overall IT costs by moving more than 1000 apps and 5000 users to our desktop virtualization platform.

A Fortune 100 CIO who standardized on XenDesktop said it best in a recent e-mail to me and I quote, the benefits of desktop virtualization have enabled us to deliver world-class eco-efficiency, workplace optimization, offshoring, business recovery and secure vendor access. As we begin our companywide transition to Windows 7 in 2011, we anticipate desktop virtualization will be the default approach across all businesses and use cases.

We are winning the market with XenDesktop by offering only product that enables user access to apps or desktops from any PC, Mac, tablet or smartphone. It delivers a high fidelity user experience, allows self-service for desktops as well as Windows, Web and SaaS apps; centralizes configuration, policy and remote support; and goes beyond VDI to integrate the delivery models needed for every user. We are delivering on our game plan to mainstream this market.

The move to desktop virtualization and cloud computing is also driving our networking business. NetScaler growth in Q1 was impressive, fueled by new high-end MPX hardware that delivers the best price performance in the industry and our software-based VPX virtual appliances that deliver the best flexibility in the market.

Innovative business models like pay-as-you-grow and Burst Pack licensing are clearly positioning NetScaler as an end-to-end solution ideally suited for the cloud era. Demand in Q1 came from a broad range of enterprise customers and service providers.

One of the world's largest acute care and hospital operators deployed NetScaler VPX virtual appliances to transition their paper-based patient record system to a private cloud-based electronic record solution. A large US retail chain purchased NetScaler MPX to scale out their rapidly growing online eCommerce business and a leading service provider standardized on NetScaler MPX as the front door of their cloud and they're also offering NetScaler VPX as a cloud service for enterprise customers.

The cloud era is driving a fundamental transformation of networks we think as profound as virtualization on servers and desktops. In this new era, fast connections are assumed and strategic focus turns to service delivery.

This emerging service delivery network will be optimized for content, context and consumerization where computing services like apps, desktops, data and rich media are accessed as on-demand services from a wide variety of devices. This is the vision behind our new NetScaler FDX platform, a groundbreaking virtualized networking appliance that consolidates security, scalability, multitenancy and performance functions without compromise.

It's the perfect front door for enterprise data centers and for on-demand cloud providers. NetScaler SDX users and Xen virtualization technology to run multiple virtual NetScaler instances on a single hardware appliance; each optimized for different apps, services, sites and customers. Each virtual instance delivers the exact mix of acceleration, security and scalability needed to serve a wide variety of enterprise workloads from a single networking platform designed for private and external clouds.

NetScaler SDX incorporates Intel's advanced multicore and SR-IOV technologies allowing it to deliver secure multitenant multiservice functionality at native wire speeds. It's a fundamental breakthrough in this market, allowing customers to move to more robust service delivery requirements by both private and utility clouds. We're innovating, growing setting the pace. Watch this space for more.

The new way to work in the cloud era is virtual with the ability to share content, screens and ideas with anyone across devices, geographies and corporate boundaries. It's a more productive, more eco-friendly and more flexible way to get things done. Citrix is leading here as one of the top Saas providers of Web collaboration in the world with GoToMeeting, training and webinar.

In Europe, we began to get some early market traction after closing the Netviewer deal. The integration is going smoothly and the 200 strong team already has a good number of wins under their belt.

This acquisition will boost the growth of international SaaS business with a much larger go to market footprint in Europe for our collaboration and support products. In Q1 we were also very pleased when Skype chose Citrix to add Web collaboration to their ubiquitous communications platform. This partnership will allow Skype to offer business customers a stunning Web and audio conferencing experience enabled by integration with GoToMeeting technology.

Personal cloud services like GoToMeeting and Skype are powerful examples of IT consumerization. It's been just one year since the iPad changed everything and for the first time, enterprise IT is embracing a wide range of smartphones, tablets and cloud powered laptops as part of delighting the user, creating new business possibilities and shifting cost away from IT budgets. This is driving huge uptake of our GoToMeeting, GoToMyPC and Citrix Receiver apps for Apple, Android and Windows allowing IT to support these devices with business endorsed collaboration, remote access, hosted apps and virtual desktops with a consumer-like user experience.

These Citrix apps have continually been at the top of the AppStore charts and are now being embedded in devices like the Motorola Atrix 4G. As new devices begin to ship based on Android Honeycomb, Chrome OS, Windows Phone and webOS, our apps will be there.

In fact, HP recently demoed Citrix Receiver for webOS on their beautiful new TouchPad tablet showing how it can securely access many thousands of corporate apps from line of business to analytics to big data visualization directly from a receiver's self-service enterprise app store. Citrix continues to be the one company that can securely deliver IT as an on-demand service to any device, anywhere.

In the last month, I've spent significant personal time with many CIOs from medium to the largest enterprises. They are moving from interested to really engaged in transformation, suggesting that all of this transformation could be more rapid than any of us first imagined.

Their desire to embrace consumerization at the desktop and in the cloud is striking. We are giving them the power to say yes to consumer devices, yes to SaaS apps, and yes to cloud infrastructure and all of that is clearly resonating with them.

Computing as we know it is facing a multitude of disruptive forces, creating unprecedented stress on today's industry leaders, forcing IT into transformation mode and providing massive opportunity for agile players like Citrix. Our strategy is to show customers how to navigate the convergence of legacy and cloud services while delivering consumer-like experiences and greater business productivity. Through innovation, thought leadership and industry partnerships, Citrix is providing a bridge to the cloud era.

Before we get to the Q&A, I'd like to personally invite you to our upcoming industry conference, Synergy 2011, where virtual computing will take center stage at San Francisco's Moscone Center from May 25 to 27. We will be introducing the future there with exciting announcements, breakthrough technologies, demonstrations and new partnerships along with a few surprises. You can register at citrixsynergy.com. It's definitely going to be another sellout and we really hope you'll join us. Now I would like to open it up for questions.

(Operator Instructions) Steve Ashley, Robert W. Baird.

Maybe we could start with some housekeeping. I'm sure that people are interested in XenDesktop. You provided, David, the license revenue of $43 million. Wondering if you'd be willing to break out what the revenue and maybe the bookings were for XenDesktop?

I will tell you, the total revenue for XenDesktop was in the mid-80s, and I think I gave the license piece in my comments. As far as the deferred piece, we talked about that a lot last year in terms of going forward.

Now that new licenses represent about 80% of the XenDesktop license mix, and then upgrade licenses through the trade-up program are only about 20%, we're not going to be breaking out the deferred piece anymore and just keep everyone focused on the recognized revenue.

And can you talk about maybe what the trade-up revenue might have been in the period and what percentage of SA customers were trading up?

Sure, as everyone knows, trade-up was more promotional activity in 2010. And at the end of the year and into 2011, it's moved into just a standard upgrade motion. We have got three main flavors of that.

Just trade up, trade up plus which allows customers that are looking to expand their XenDesktop environment vehicle to do that, and then trade up max which is really looking at people that are wall-to-wall covering every user and use case. And probably the one really interesting statistic from Q1 is that about 30, 35% of the customers that participated in the trade-up program actually came through in the plus.

So that means that a third of the existing customers taking advantage of trade-up are using that as an opportunity to expand further and buy more XenDesktop licenses. So, I expect that it will be probably in the single digits in terms of the percent of customers trading up in any given quarter now that it's just part of the ongoing rhythm.

Great, and maybe just lastly a comment on the geographic demand for XenDesktop. Is it centered in the United States, are you seeing uptake outside the United States? Any general comment on that would be great. Thanks.

Steve, we're seeing demand really across the board. If you look at some of the big deals that occurred for XenDesktop in the quarter, the single largest one was in the Americas, number two and number four were in EMEA. We're seeing good customer traction across the Pacific region. So it's a nice blend of business overall.

Heather Bellini, ISI Group.

I was wondering given you just commented that trade-up is such a small percentage versus last year, do you think we all need to start thinking differently about how we model deferred revenue for you guys and also just how we should think about the sequential growth versus last year of license revenue given the difference in how you recognize the revenue on those deals?

Sure, Heather. Let me think about -- let me take the second part of that question first. Last year when we were really focused on trade-up especially in Q2 when there was a lot of promotional activity, we had tremendous customer demand and customer bookings and that drove a growth in deferred revenue which I believe was up just over $50 million last year.

So I expect Q2 deferred revenue to be strong, strongly positive, and higher than the growth we saw in Q1. Most of that booking was recognized over a regrettable period of time.

So as the mix between new licenses which are typically about 15 or 20% the first and trade-up which could be 50% deferred. As that continues to shift, you're going to see more show up in current period revenue through product license and less show up on a protracted base over license updates. So that's the way to think about it.

Yeah, I was just wondering. So then seasonality should actually start -- the license line seasonality should start to accelerate a little bit, and then maybe we don't see the same acceleration on the deferred line just given the mix that you just went through. Is that fair?

Yes, I think there's actually two things that I would probably point out there. In terms of recognized revenue, the Desktop Solutions group, that was the one that was up 21% this year, our prior guidance would've taken Desktop Solutions license to between 11 and 14% for the year.

I think given the Q1 performance and full-year outlook, we would be comfortable raising that to about 16 to 18% growth for the full year 2011 and that's reflecting some of the trends that I'm talking about here. The other thing I would point out in terms of the individual line items on the P&L is license updates, and that's the line that we recognize most of the deferred revenue through.

So that is a lagging indicator to product license bookings. You've seen how that -- the year-over-year growth rate has decelerated over the last several quarters, really reflecting the economic environment and the low product sales that were occurring in 2009 and really into the beginning of 2010.

So looking into Q2, I think you should expect license update revenue to decelerate a little bit, a little bit further on a year-over-year basis and have Q2 be the bottom for the year and start to accelerate into the back half of the year again.

Great, thank you very much.

Adam Holt, Morgan Stanley.

I'll ask a follow-up on the change in the mix. How materially has your price per seat changed given the mix orientation towards new versus trade-ups?

Overall ASPs are moving up and they're moving up in a couple of reasons. One is that the platinum mix, customers that are choosing the platinum versus of XenDesktop is increasing a few points.

The underlying price of trade-up has increased a couple of times, so just the standalone trade-up ASPs are up. And we also introduced a CCU version of XenDesktop in the first quarter.

And to actually a very good success. We had about 20% of the XenDesktop product bookings that were done on the CCU edition therefore yielding a higher ASP. So long way to say they have been slowly moving up and to the right.

And just to follow up, if you look at some of the older customers, some of the older vintages, what has the impact been on maintenance renewals within the XenDesktop base and what kind of reorder rates are you seeing within the older customers?

As far as the renewal rates, we've got about six quarters of history right now. So we're just really coming up on the first couple of quarters of material renewals.

Last quarter very, very strong, high 90s; Q4 was in the high 90s, Q1 continues to be in the 90s. And I think that's where we will be pretty much for the entire year and then as the base gets bigger, we will adjust if expectations change.

And then just on the reorder rates from existing customers?

Reorder rates, the way we are tracking that is really just initial customers that have come back and looked for an expansion. And right now we've got about 20% of the customers that have purchased XenDesktop to date have come back and are driving further expansion off their initial order.

The time to reorder has been pretty consistent over the last two or three quarters. That is running at about call it seven months. As far as the reorder rate or the volume, how much they come back and reorder, that's been bouncing around between about 7x and 10x over the last few quarters. So these are metrics that aren't terribly precise, they are great directional indicators and they are all very, very positive at this point.

Phil Winslow, Credit Suisse.

Great quarter. Just want to focus on the NetScaler business for a little bit.

Obviously you talked to some strength on the Internet side this quarter. Just what are your thoughts on that business sort of as we progress for the full year? And if you expect the enterprise or sort of the traditional Internet customers to start to show up over the next couple quarters here? Thanks.

Sure, Phil. NetScaler had a great quarter I mean really across the board. Revenue was up on the NetScaler piece over 50% year on year. It's coming from a number of points that we called out earlier.

We're seeing good traction at the highest end selling into big Web properties, major service providers. We're seeing continued traction for the cross-sell activities that we've done to cross-sell networking into our traditional enterprise accounts.

We have well over 400 unique customers that were buying both hardware and software products in the quarter which is -- continues to be up and to the right. So that is terrific.

And then the last thing around our virtual appliances, the ones we call VPX, those are now contributing materially. That is up to about 10% of the overall NetScaler mix and it's pretty important because we are seeing not only customers that are starting with VPX and then following up with an MPX sale, but a lot of customers that are actually looking at both the hardware and the software versions.

Think about it as kind of an interoperable part of a service delivery fabric where you can take an MPX appliance, put it at the front door of the data center and then use VPX virtual appliances on different tiers of the stack; your Web tier, your app tier, your data tier etc. just giving them really unprecedented flexibility and performance across the infrastructure. And so those are great trends that we're starting to see.

As far as the overall business going throughout the rest of the year, optimistic about NetScaler, I think we've got some good things coming out. We talked about SDX, got some new surprises coming later in the quarter and next quarter and so a positive outlook.

As far as the rest of data center and cloud, the only thing I would say is that the Branch Repeater which is our WAN optimization solution, we have had great success with the federal government in 2010 selling that in big deals in both Q2 and Q3. Since I don't see those immediately in the forecast for this quarter, got a really tough comp coming up for Q2 and Q3. So the blended business for the division will be call it low double-digit growth overall but certainly the NetScaler piece growing substantially faster than that.

Daniel Ives, FBR.

(inaudible) promotion finish, what sort of anecdotal feedback from the field, customers that you got during the quarter may be surprised? Obviously it was a strong quarter. But did that even surprise you guys just how strong that was sort of promotion?

No, Daniel, I think it wasn't the promotional activity and that was really tied back to the trade-up licenses. That was forecasted to end at the end of the year. So I think trade-up is -- now that it's just part of the recurring rhythm is going to be something that is (inaudible) de-emphasized but is certainly less material as we go forward.

But I think the actual bookings in terms of new licenses, new customer engagements, all the activity metrics, those are real positive but that's what we're expecting. We're expecting good performance.

The only thing I would add to that, Daniel, is you should think about trade-up last year as a promotion to help the transition to sort of this XenDesktop spacce, XenDesktop virtualization solution. This year it's really a standard upgrade program from XenApp.

So from a customer point of view and in the field, there's less urgency because customers now say okay, that's a standard program, it protects the investment I make in XenApp, so if I'm ready to move, I can move whenever I wish, I don't have to wait for a promotional program to timeout and depend on that. So I think it really has created a situation where customers are -- it's very customer-centric and makes them feel good about their XenApp investment.

Just a final question, in terms of vertically speaking, just talk about maybe financials, how that performed and just any specific thing that stood out vertically.

Daniel, I would say overall, there's not a material shift from the verticals we talked about in the past. The large ones continue to be finance, healthcare, education and government. And that tracks pretty well across all of our businesses.

Rob Owens, Pacific Crest.

Wanted to drill down on XenApp actually a little bit. I think XenApp license outperformed our expectation and it was the least amount of decline that you guys have seen in the last couple years. So was there something unusual in the quarter or is this more of the static rate you would expect to see throughout 2011?

Yes, Rob, I think you hit the nail on the head. Again, it links back to the trade-up comments I just made in that our goal with trade-up was to accelerate the process of customers choosing the optimal product for their needs where more strategic kinds of customers chose XenDesktop and more application-centric and more project-oriented customers choose XenApp.

So the way I think of it is now were six quarters into this process, I think we've accelerated and we hit this inflection point where the mix is normalized across the two products and now it's up to us to really articulate the strategic value of XenDesktop to XenApp customers to actually trade them up on a pace that's interesting to them. In the meantime, there's still huge justification around TCO and the other aspects of app delivery that make XenApp an incredibly relevant and valuable product all by itself.

Great, and then second, Mark, I think you gave a customer example of someone moving to Windows 7 around XenDesktop. As you look at 2011 and that pipeline, do you see that being the biggest influencer of people moving to virtual desktops or is it the consumerization of IT? Maybe you could rank those for us.

I don't think you can separate them to be honest, because I think one is a user experience kind of mobility and consumerization kind of phenomenon, the other is how do I deliver the business systems that I've built on the Windows platform. And so with -- you can see in the customer that I quoted, a very large customer like that, Windows 7 migration there is just beginning, and I think you just can't parse them apart which is what makes what we're doing pretty interesting.

Because in one solution, they get a great way to migrate that's quick, secure, lower cost and at the same time, we get to support this wide range of consumer devices and implement BYO programs and a lot of things like that and have one investment that does both.

Israel Hernandez, Barclays Capital.

Great quarter guys. Mark, with respect to some of the strategic partnerships that you talked about, Microsoft and Cisco, can you talk about the type of leverage that you're seeing from some of these strategic partnerships and what are your expectations going forward?

How much of the mix can some of these partners drive? And what does that mean for kind of your traditional kind of rank and file reseller? Are you seeing this shift away from the low end to the high end?

You know, I think, honestly it's really -- it's not a shift, it's just that the high end seems to be growing a little faster in terms of dollar volume. But the unit volumes, there's a huge unit volume growth in the small and medium market which is where our primary two tier integration partners play.

So we are seeing a lot of leverage from the strategic partners I mentioned. So just a couple of points here.

I think in the quarter there were three of the seven figure plus deals came through SIs. Our top-performing SI for the quarter was CSC but we had tremendous performances from Accenture, Fujitsu, HP and IBM as well.

The pipeline achieved sort of a new level, a record level, and it really looks great looking forward including this quarter. And with Microsoft, the progress there has just been stunning.

In fact we have now over 50 people in the field who are completely dedicated to working on joint wins with Microsoft. So as we track the pipeline, POCs etc., it's really strong. I think there were almost 70 wins worldwide during Q1 with Microsoft.

And then we see great traction in our partnership with Cisco which really is about three quarters old at this point. So we like what we are seeing there.

We closed quite a few deals already in POCs and obviously we're still doing a lot with Dell and HP. In fact we just launched a solution with Dell, desktop virtualization with Dell, their hardware with -- and services with Citrix XenDesktop. So I think overall we're getting a lot of leverage but most of these tend to address the higher end larger deal part of the marketplace.

Israel, this is David, I would just add one metric on top of that is that last year SIs were contributing less than 10% of the product bookings in any given quarter and what we've seen in Q1 and what we expect for the rest of the year is the number to move up to anywhere from 10 to 20% of the mix in any given period.

Greg Moskowitz, Cowen and Company.

Just a couple of questions. David, was wondering roughly how many XenDesktop licenses shipped in Q1. And then for Mark, how significant a driver of incremental business do you think XenDesktop 5 has been so far?

Greg, in terms of the number of licenses, when we look across the entire Desktop Solutions business which is really the metric you need to be looking at now that licenses are about 50-50 between XenApp and XenDesktop and customers are really purchasing them for more specific use cases, that's the number that I'd like to keep people focused on going forward. That number was well over $1 million in Q1.

Greg, on XenDesktop 5, I would say that from a revenue point of view, the impact has been minimal because it's just been shipping basically for four months. I would say from a POC and unit volume perspective, it's contributing hugely at the smaller customer and medium end of the market in proof of concept.

It's also been instrumental in engaging our silver and gold partners as they look for -- they wanted something a little simpler to take to their customer base and XenDesktop 5 really changed the game when it comes to simplicity of implementation and configuration and ownership. So I think what is ahead is some great impact from XenDesktop 5 at the strategic level because we improved the performance and user experience and made it more manageable and scalable which will tend to be features and capabilities that are appealing to larger scale deployments and customers. So that is yet to I think impact the revenue.

Michael Turits, Raymond James.

Just one thing I may have missed. Did you give the total desktop license number?

Yes I did, it was 43.

And then on professional services -- again I've been jumping between calls, but did you talk about your build in headcount in professional services? How has that been going? Is that accelerating? Can you describe that a little bit for us?

As far as PS revenue, that has just been a huge success. I mean it was up 40% plus in Q1 after being up 30% last year and it's one of those areas where I think we're capacity constrained.

We've been adding aggressively across our consulting capacity in all geos really to help customers not only get POCs off the ground, but provide architectural health, implementation etc. and really be there to facilitate knowledge transfer. And a successful customer out of the gate obviously becomes a much larger customer downstream.

So great leading indicator when I look across the consulting business. We're going to continue to add to that capacity throughout Q2 and the rest of the year I'm sure.

The other side of that is around tech services. We have had a lot of customer demand for maintenance agreements on top of the networking products as well as just software support for everything else. So, good business, I think looking into Q2, it will grow sequentially, probably in the mid to high 20s on a year-over-year basis from a growth rate and really just be gated by our capacity and our ability to add people.

Okay, and as you commented a little bit on desktop license where that might go for this year, desktop overall I think grew around 13% pretty much in the range of last quarter's 14%. Any thoughts on that for the year or how that might accelerate into the back half?

I know there's other great things going on but there probably are some constraints in terms of complexity, sales cycle. So when does that really start to pick up overall?

Well, when I commented earlier on the kind of broader Desktop Solutions license and how that -- the expectation for that has moved up about 5 percentage points from preliminary guidance going into the year, when I look at product license updates, and I talked about that a little bit earlier. That one lags the product license cycle.

And so expectations for license updates which are a big part of that business would be around 10% growth for the full year. But my comment that I had made is that I expect Q2 to be the low point for the year in terms of year-over-year growth rates and then start to accelerate in the back half of the year.

Walter Pritchard, Citi.

Two questions, first, wondered if you'd talk about just the impact of Netweaver on your guidance for the year that you updated today and then had one follow-up.

In terms of Netviewer, no change in our guidance. We have included that in our preliminary guidance that we gave last quarter as far as Q1. We closed in the second half of the quarter, so not a material impact, contributed a little less than $3 million in total revenue and was about a penny and a half, two pennies dilutive to the bottom line.

So no change in full-year outlook. That said, contribute about $20 million to the online SaaS line and be roughly neutral from an out margin standpoint.

Great, and then just the comment around deployments and 50 deals with over 10,000 licenses. Any update there on sort of deployment progress there and just where that stands?

Yes, Walter, the deployments are actually going quite well. I think in the metrics, you see that as part of the consulting and professional services revenue and we see it in the reorder rates in terms of customers coming back for more licenses.

In addition, we launched in Q1 a new service out of our consulting business as well as we are offering it through our integration partners and it is a service around something we call the desktop transformation model and it helps customers actually be more efficient, more effective at deploying XenDesktop and XenApp in terms of effectiveness and efficiency.

And that's a new program. The early reviews have been really good. So we are really delighted with the uptake as well as customers putting it online and using the products on a daily basis.

Todd Raker, Deutsche Bank.

Nice quarter. I've been jumping on calls, so I may have missed this. Did you guys give a XenDesktop ASP?

No, we didn't.

Are you willing to give it just roughly?

Well, what I have is more of a bookings number than a recognized number. So I kind of want to shy away from giving that.

But I will say that overall ASPs have been trending upwards. I talked a little bit about the dynamics moving that and it is a function of prices increasing across the trade-up program, the CCU edition that was launched within the last quarter or so and then the higher concentration of platinum in the mix. And platinum just I think I forgot to say, platinum is running about 65, 70% of the mix at this point.

And then for Mark, could you just give us your perspective in terms of where you guys stand on the server side of the equation? And how has the desktop competitive landscape shifted in the last kind of three to six months?

Todd, on the server side, we are continuing to see great uptake on a viral basis of XenServer and sort of a the (inaudible) motion in that business. But the important dimension of XenServer is its contribution to our growth in the desktop business and its contribution to what we're doing in the networking business. As I mentioned, it is now embedded in our SDX platform. That's going to give us a tremendous range of competitive advantages in the networking segment.

And then when it comes to the desktop, XenServer continues to be the optimal platform to run XenDesktop on because of the technologies that we have embedded on both sides of the API stack. Now that doesn't mean customers always choose that.

We're seeing it stay underneath XenDesktop in at least a third of the cases and we see a big uptake in that area in our relationship with Microsoft and Hyper-V and actually fewer customers running XenDesktop on EFX. And then as we are getting more and more focus in the cloud, we're seeing great uptake in cloud providers of XenServer.

I think you all probably saw the announcement that we made not too long ago with Rackspace who moved entirely to XenServer but we're doing that with other public clouds. And as I think you all know, Xen is actually the hypervisor in about 80% or more of the utility clouds that are out there. So, broad impact from Xen technology in the business and not only where we have been, but where we are going.

Brent Thill, UBS.

Mark, if you could just comment on what you're seeing in sales cycles. It seems like they would accelerate due to the initial success of some of these XenDesktop deployments.

Do you feel like you are hitting an inflection point where now this is starting to spin a lot faster and giving you faster engagements with the customers?

Brent, I think that in the larger customers, it seems to be getting a little easier. I think that's true. And I think some of that is coming as a result of the kind of referrals and references that are important to that size of implementation.

I think it's -- in the sort of small and medium segment, I think that is still hard to get a read on in terms of the sales cycles. These sales cycle measures are not that precise as David mentioned a little bit earlier.

But I think we'll probably work all year on trying to do some things to shorten the sales cycles in the small and medium sectors and that will be part of I think our goal here in the next release of XenDesktop to make it even easier to sell and implement it and own and so forth which will directly impact sales cycles I think in the future.

Thanks, David, just a quick follow-up. You mentioned one of the factors in the strong deferred revenue growth with the multiyear deals. Can you just give us a sense of what's happening in some of the -- I don't know exactly what you would call it, an enterprise license agreement for you, or what your technology is, but what you're seeing around that. Are you seeing more and more customers willing to step up to these type of transactions?

I think what we're seeing more often is the customer looking to take down an initial block of licenses for whatever phase of their implementation and then wanting to buy multiyears of support on top of that. That is more of the kind of the common case.

It's not really our strategy to go out and try to sell an ELA where it's all you can use and try to effectively jam a lot of licenses on customers. We'd much rather do it as they're rolling things out, being successful, and really along their timeline.

So I would say that's more of the rule. There will be exceptions along the way where customers are looking for terms-based licenses which we're starting to see more and more of those, not a material part of the mix yet, but not unusual to see a large customer especially like in the education vertical looking for a two, three, four year term-based license.

So we will provide whatever is right for the customer and make sure that we're being flexible. But nothing that I'd point out as a real material shift yet.

Brent, what I would add is that as time ticks forward here to the degree that strategic customers tip over, they'll actually come and they'll say okay, I've decided to standardize and really go enterprisewide. The quote that I read was an example of a customer that made that decision based upon a number of very successful projects and where they sort of connected the dots across the project decided that we just want a license for everyone in the enterprise and every device. So, I think we'll start to see that phenomenon tip over in the second half of the year a little bit more often than we have seen it in the past.

Brad Whitt, Gleacher & Co.

I was wondering if you have updated guidance on your other income line considering the big upside you had this quarter. And then curious as to the integration plans for NetVision will you be looking to migrate those customers over to your GoToMy platform or how will that transition?

Sure, let me talk about the first point as far as other income. The FX re-measurement I think is more of a one-time thing in the first quarter.

I wouldn't anticipate that happening every period. So if you are modeling it out, so more in the 3 to 3.5 million range is probably pretty good for the next few quarters and we will change materially until we start seeing the interest rate environment change.

Brad, in terms of the integration plan, obviously all new sales are being directed toward our GoTo platform. And then with existing customers, we are out selling them on the benefits of migrating and then allowing them to add on, existing customers to add on to the subscriptions and licenses that they have in the hopes that over a little time here, we will show them the benefits of a straight migration. So it will be a process that will probably run over 18 to 24 months.

Ed Maguire, CLSA.

Just a couple of questions about the role that you may have seen Receiver playing in terms of driving uptake of licenses broadly across Desktop Solutions and also any update on uptake of XenClient in the portfolio.

The way it works with Receiver -- sort of the way I think of it is sort of two angles. One is for customers that already have XenApp or have XenDesktop, this is just a confirming value of having deployed that platform and proves out the network and device independence sort of value that we've talked with them about for a long, long time. So that's one dimension of it and why we're rseeing amazing downloads.

In fact I looked just last night and Receiver is still in the top 10 on the iPad/iPhone App Store and it was the number one free business approximately on the Mac App Store. And that is coming from people who already have the infrastructure downloading it and using it to connect to something they already have.

I think Receiver plays an important role then in our strategic message and how we demonstrate what is possible on XenDesktop and XenApp to newer customers that we are talking to about a strategic implementation and how this answers a lot of the consumerization challenges they have around really lighting up these consumer devices without compromising security. So that's the role it plays there.

Very, very strategic role there and why every device that's coming out going forward here, the newer platforms, as I mentioned, HP's TouchPad based on webOS, some of the ProMOS devices, Windows Phone devices etc., Receiver will be there. So that will pay off on what our promise for network and device independence.

As far as XenClient uptake, the downloads have been -- continue to be very solid. We'll talk more about XenClient at Synergy and we are pleased with what it's doing for the business, giving customers yet one other FlexCast delivery model.

It tends to be more important and popular in segments where there's a very high level of concern around security in combination with mobility. And so in those sectors, finance and banking, government sectors and healthcare sectors, it's doing quite well and is a very important part of the XenDesktop story.

Curtis Shauger, Caris & Co.

Congratulations on a good quarter. A couple questions, if you could. You talked about the kind of reorder rate on folks for XenDesktop.

I was hoping to talk about the renewal rate. It seems as though some of the downdraft in the license update line is due to lower ratio of maintenance bookings to license this year versus last year due to the kind of compression license due to discounting. Is that the right way to look at what is going on?

No, I actually wouldn't read into it much especially in Q1 where there's a lot of moving parts around customer budgets, timing of implementation etc. So no material change in renewal rates and like I said earlier, I expect a big Q2 in terms of renewals especially from the big Q2 last year with XenDesktop and renewal rates will be in the mid-90s for XenDesktop and continue to kind of be in the mid-80s for XenApp.

Got it. You covered my second question on that last part, thank you. The other question was around NetScaler.

Obviously the results are very impressive. It seems as though some of this, at least some of the check that I've done, may be related to some of the new emerging streaming media models with some of your customers. Do you have any insight as to that level of detail with some of the order patterns you have seen?

I would say not specific to that. We're winning across the board for a number of reasons whether it's just customers expanding capacity, replacing legacy gear, we're up-selling features, the VPX, MPX dynamics that I talked about earlier. There's just a lot of things going on.

But the single biggest are really those two that I called out. The fact that we're driving a cross-sell motion and we've got hundreds of customers now per quarter that are buying multiple products.

And NetScaler being the primary beneficiary there. And then on the highest end, the price performance benefits that we have with our high-end MPX platform serving up the biggest of the Web and cloud properties out there, it's really those two dynamics that are driving it.

Curtis, the only thing I would add is a couple of things. First, with the introduction of VPX, it really made NetScaler much more consumable and comfortable for our distribution partners, our integration partners because they tend to be focused on software for the most part historically.

So the VPX models have really helped them actually get engaged with the NetScaler brand. That then is leading them to sell not only VPX but MPX.

I think the second piece is we've actually had a very focused initiative around cross-selling our networking products and so our field teams are much better at that and we have added more capacity in the field around -- technical selling capacity around the NetScaler product line and that has also helped a lot. So there's a degree of sort of push to this as well as the customer pull.

And obviously we are going to keep innovating. We made an announcement, I think an industry first a couple weeks ago around our new Datastream technology. So it takes everything that we learned about putting NetScaler in front of the Web tier of an app and it implements that same acceleration, security, performance etc. and offloading capability to the data tier, so sitting in front of databases which will save customers money, make apps faster and more secure.

So we're just getting into that and so I think we have a lot of opportunity here with greater capacity in the marketplace to take the products to market and greater innovation to make them more applicable where we do introduce them to customers.

Excellent, sounds great to me, thanks again.

Kash Rangan, Merrill Lynch.

Your financial results certainly look very impressive. You're seeing some nice reaction reacceleration in licenses revenues which is good to see.

At the same time, Mark, I'm just wondering how when you look at the trajectory of XenDesktop units, you had about 0.5 million units if I'm doing the math right here, how do you think about the trajectory of XenDesktop units relative to the TAM? When do you think the market is going to be mainstream?

If you look at the units the last three quarters after the trade-up program got less aggressive, you've done about 2 million units over the last three quarters. That's roughly on par with the Q2 last year when you had the trade-up program.

So, how should we think about the trajectory of your XenDesktop units relative to the TAM that's out there? At what point are we going to be overcoming the CapEx/OpEx obstacles before this market really becomes mainstream? That's it for me, thank you.

Thanks for the kind words. So honestly that way we're thinking about this is really simple. This is a desktop virtualization business. And so the unit mix and sort of what customers choose to buy in the end, whether it's XenDesktop that's inclusive of XenApp or just XenApp, we really are kind of indifferent on that and we want customers to buy the product that suits their needs.

And so if you look at the unit volumes that way, we continue to see great progress and growth in both dimensions. The goal here is to drive to mainstream.

We are still in the early stages and what it takes is some of the things that we have done that are very much in our control around making the product easier to implement, making it simpler to manage, and doing more of the innovation area around storage and getting some of the cost of implementations down, making it easier for customers to understand how to do the transformation through our desktop transformation model. So there are a number of things there that we're doing that are in our control and obviously we're benefiting from some things that we don't want to control actually.

They're these tailwind forces that are coming from all the consumerization stuff whether it's devices or personal clouds or even what's going on in utility clouds. So I would say that it's hard to call an inflection point because it's not likely that it will be a knee -- there will be a knee in the curve.

It's that this will be gradual acceleration through the year around this business overall and you know, we'll do everything we can that's in our control to accelerate it in the meantime. So some of that we will roll out at Synergy in May and we hope to see you there.

Likewise, thank you very much. I guess one conclusion to my last question is are we expecting some unit pickup in the second half of the year? Because it will be about nine months since XenDesktop 5.0 got introduced. Are you expecting some unit volume pickup as you go into the third quarter, fourth quarter based on the pipeline activity you are seeing? That's it for me. Thank you.

Yes, I think the short answer, we have seen a nice acceleration on new licenses when you exclude the trade-up portion and I would expect that to continue.

Kirk Materne, Evercore Partners.

Mark, just a follow-up on I guess your comment about making the market more expensive and opening up I guess specifically some of the small and medium-size businesses. Now that you have had some success or I guess a fair amount of success at the large enterprise with your partners, I guess how much influence do you think you have today to help some of your partners on the storage side to show them the benefits of helping you guys drive the total cost of ownership for XenDesktop down today versus a couple of years ago?

Because to us it seems when we talk to SMB customers, they're all very interested in this trend but there's still some of the upfront costs that are -- obviously it's harder to amortize those costs over 1000 computers versus 100,000. So I'm just kind of curious on what you guys think you can do over the next six to 12 months to maybe help accelerate the natural sort of commoditization -- not commoditization, but the natural sort of adoption rate of these technologies.

I think a couple things, Kirk, first of all, all of our storage partners are always dealing with this commoditization issue and trying to lower the -- increase the efficiency of storage which then makes it feel like it's less expensive to customers. So all the technology -- we are writing all these technologies whether de-deup and thin provisioning and those kinds of things and that gets better all the time.

I think second thing is there are some lower-cost storage solutions that are very good for the SMB type customer. One of our partners is -- are the guys over at Drobo and they make a very efficient, very low-cost storage solution that some of our smaller resellers like a lot. And then I think the third area is we are obviously adding capabilities to XenDesktop that reduce the storage requirements and doing that in XenDesktop itself as well as inside of XenServer.

So I think it's sort of one part innovation, one part new products that are serving a lower cost segment and then one part working with the larger storage partners around optimizations that they are naturally doing to compete in the marketplace.

Just one quick follow-up maybe for David. Just on the new CCU pricing you guys put out this quarter, I guess any real near-term impact from that or -- the feedback we receive is all pretty positive on just having another option. But any I guess surprise to you all in terms of the impact on that in the near term or what you see over the next few quarters?

No, not a surprise, I would say. We comprehend it in the forecast and as far as the uptake, I said before it was a pretty good part of the mix. We just want to make sure we're giving customers the options that make most sense for them within their business and in their own deployment schedule or deployment model. So we'll continue to listen to customers and react as needed. So I think it will continue to be a good part of the mix as we go through the year and then as the market matures over the next two or three years, we'll see.

Thanks, congrats on the quarter.

And with that, I would like to thank everyone for joining the call today. Obviously, we feel really good about our results in Q1, looking forward to a great Q2 and continued execution on both our financial and our strategic objectives. So thanks again and we will see you in three months.

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